Prashant Yadev

Making the Pharmaceutical Market Work For The Poor

04/12/23

22

Medicines as a percentage of household health expenditure

Source: WHO

UK~ 12%

Patients in low-income countries spend a disproportionate amount on medicines

0 10 20 30 40 50 60 70

Lowest

Highest

Developing CountriesOECD Countries

33

Intra-country variation in coverage of treatment for common illnesses

The lowest income quintiles have poor coverage for essential medicines

Source: Gwatkin et al 2006

0

10

20

30

40

50

60

70

Acute Respiratory TractInfection

Diarrhea Fever

Poorest 20%Wealthiest 20%

44

Who avails government subsidized health-care and medicines?

15%

26%

Poorest 20%

Wealthiest 20%Public sector subsidized drug distribution tries fulfill the coverage gap for the poor but

doesn’t always reach them effectively

Source: Gwatkin et al 2006

55

Examples of pharmaceutical systems in OECD countries

66

Around 45 full-line pharmaceutical wholesalers

Three large national wholesalers contribute to over

85% of the market share

Large network of pharmaceutical warehouses

More than once a day delivery to each pharmacy

Pharmaceutical distribution structure in the UK800 million prescriptions

£6 billion worth medicines dispensed

Approximately 12,600 pharmacies

77

UK pharmaceutical system: Financial flows

Manufacturers

Wholesalers

Pharmacies DH/NHS

List price less negotiated discount

to become primary wholesaler

Patients

DH negotiated price

List price less 12.5%

Clawback0

88

UK pharmaceutical system: information flows

Manufacturers

Wholesalers

Pharmacies DH/NHS

Patients

MHRA

NICE

Prescribers

99

Pharmaceutical distribution structure in the US

3.4 billion prescriptions

$ 275 Billion worth medicines dispensed

Approximately 57,490 pharmacies

Average distance to a the nearest pharmacy is 2.36 miles

Three large national wholesalers contribute to over 85% of the market share

Large network of pharmaceutical warehouses

More than once a day delivery to each pharmacy

1010

US pharmaceutical market: physical flowsManufacturers

Wholesalers

Pharmacy Chains and Food Stores with Pharmacies

Non-retail providersClinics, Hospitals,

Federal Facilities,HMOs

65%

3%

30%

Patients43% 28%

Independent Pharmacies

Mail Order Pharmacies

14% 15%

2%

Source: GAO Report 2006

26% out-of-pocket expenditure on medicines

1111

US pharmaceutical market: financial flowsManufacturers

Wholesalers

Health PlanPatients Premium

Pharmacy

Copayment

WAC

AMP

Pharmacy Benefits Manager

Payment

Share of rebates received from manufacturer

or wholesaler

Payment

Negotiated rebates

1212

US pharmaceutical market: information flows

Manufacturers

Wholesalers

Health PlanPatients

Pharmacy

Pharmacy Benefits Manager

Prescriber

Info-broker

Formulary Committee

FDA

1313

Source: Farmaindustria 2004

Spain pharmaceutical market: physical flows

Manufacturers

Wholesalers

Pharmacies

HospitalsGovernment

76%

75%

1%

20%1%

3%

Patients

77%

1% 22%

1%

1414

Performance indicators in some of these markets

1515

Order Fill Rates at the Point of Dispensing

Source: European Pharmaceutical Wholesaler Industry, Technical Report 2006

98.5

98.2

96.0

95.8

95.5

95.1

95.0

50 60 70 80 90 100

France

Austria

Italy

UK

Germany

Netherlands

Spain

EU-15 average at retail

pharmacy

Average across low and middle income

countries in state-run health clinics?

1616

Margins at different supply chain stages

Source: Alliance Unichem

1717

These markets differ in many ways but they have several commonalities A self-regulating framework that balances power between the patient, the payer,

the supply chain actors and the government (either by market forces or by fiat) Legal structures that allow the freedom to contract each activity resulting in

optimal levels of market competition at each stage No information opacity at any node of the supply chain A civil society that creates a well-informed and knowledgeable patient

population Clear and transparent regulatory structures Roles that require agility in contracting have minimal involvement of the state

e.g. physical logistics and distribution of medicines Roles in which the power of state can be leveraged (or those that require rigor

in enforcement) are state monopolies e.g. price negotiation and control with the manufacturer, quality approvals

1818

Pharmaceutical systems in developing countries

1919

Low and middle income countries: physical flows

ManufacturersProcurement

Agents

National Medical Stores & MoH

Private Importers

Mission Sector National Buyers

Districts or Regional Stores

Wholesalers and sub-wholesalers

Mission Sector Regional Offices

Public Hospitals + Health Facilities

Mission Hospitals + Health Facilities

Pharmacies

Drug Shops

Private Clinics

Other informal outlets

Patient

Prescribers & Dispensers

2020

Low and middle income countries: financial flows

ManufacturersProcurement

AgentsNational Medical

Stores & MoH

Private ImportersWholesalers and sub-wholesalers

Pharmacies

Drug Shops

Private Clinics

Other informal outlets

Patient

Prescribers & Dispensers

International Financing

OrganizationsMoH budget

2121

Low and middle income countries: information flows

ManufacturersProcurement

Agents

National Medical Stores & MoH

Private Importers

Mission Sector National Buyers

Districts or Regional Stores

Wholesalers and sub-wholesalers

Mission Sector Regional Offices

Public Hospitals + Health Facilities

Mission Hospitals + Health Facilities

Pharmacies

Drug Shops

Private Clinics

Other informal outlets

Patient

Prescribers & Dispensers International

Financing Organizations

Ministry of HealthGlobal Technical Policy Institutions

2222

12%

18%

70%

Manufacturer's price

Wholesaler gross margin

Retail gross margin

10%

26%

64%

Manufacturer's price

Wholesaler gross margin

Retail gross margin

Data based on small sample analysis of anti-rabies vaccine in Lusaka, Zambia

Data based on small sample analysis of antibiotic-vials in Zambia

Margins at different supply chain stages in developing countries

Retail margins are very high for most products.

For imported and single-sourced drugs wholesale margins are also often high.

2323

Characteristics of developing country pharmaceutical markets Lack of competition at one or more stages in the supply chain

(especially retail) Hyper-competition at some stages in the supply chain e.g. wholesale Longer supply chains: More intermediaries, brokers, agents involved Payer/patient in the private market has little power Little contracting flexibility to utilize efficiencies in procurement,

distribution and logistics Myths and Perceptions

– Private-sector = “ super-normal profit taker”– Public-sector = “ lacking agility and responsiveness”

2424

How can we facilitate retail competition ? Reducing barriers to entry for retail pharmacies

– E.g. accredited second-tier drug shops with lower fixed operating costs will force registered pharmacies to either reduce prices or offer premium quality of service in order to differentiate themselves

Sharing fixed costs of operating a pharmacy Creating shared product delivery platforms Alternatively, to counter lack of retail competition Create equilibrium by shifting balance of power towards wholesaler

and end-patient– Broadcasting price information to consumer– The “three” full-line wholesalers model

2525

What drives channel markups?

Based on various published studies, author’s interviews with wholesalers, retailers and pharmacists, C. Goodman thesis,

Channel Markups

Balance of PowerWholesaler , Retailer or Customer

Competitive Intensity

at different Levels

Channel Cost Structure

Fixed vs. Variable

Consumer Price Awareness

Pull vs. Push

2626

Price information and impact on equilibrium prices PRICE of AMOXICILLIN 250/5ML in 277 pharmacies in the state of NY

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Price in US$ for 150 tabs

Mean price= $13.31Std Dev = $2.86

Public knowledge of price information reduces equilibrium prices

http://rx.nyhealth.gov

2727

Does the presence of more intermediaries in a supply chain

necessarily hurt performance (prices, quality)?

2828

Apparel Supply Chain

2929

What makes this happen?

An “orchestrator” of trust and information in the

very fragmented apparel supply chain

3030

An orchestrator of trust and transparency in the global

health network ?